Richard Brown talks to manufacturers, funders and industry bodies about the motor finance sector where captives and independents agree there is an opportunity for growth – motorcycles
Generally, finance is what sells bikes, says Philip Ross, general manager of Honda Finance Europe, the captive finance house of the UKs biggest-selling motorcycle manufacturer.
Go deeper with GlobalData
Talking to industry bodies, captives and non-captives, motorcycle finance services a core of older riders and savvy pistonheads, with room perhaps for a new player.
Compared to cars, motorcycle finance is not yet saturated with manufacturer offers and captive operations. Much of the finance market is taken by two large independent funders: Close Motor Finance and Black Horse, which provide finance for all manufacturers to feature in the Motorcycle Industry Association (MCI) monthly top-10 sales this year except Honda and BMW, operating through respective captives, and scooter brand Direct Bikes.
Rosss statement echoes those of Yamaha, who use Black Horse, and Suzuki, who use Close, in the past few months announcing a gamut of low-rate and 0% APR offers. Without finance, motorbikes would not get sold, said one spokesperson.
Like cars, that finance and those sales are dominated by PCP. Both BMW and Ducati now offer PCP on all models, with the Italian manufacturer estimating PCP accounts for 63% of the finance sold on its motorcycles in the UK today. As Joe Pattinson, marketing manager at BMW Financial Services (BMW FS) says, sales are not growing at a huge rate; finance penetration is growing significantly because of offers like deposit contribution.
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Thank you!
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form
By GlobalDataQuick off the lights
Right now, motorcycle sales are at a probable nadir, says Stephen Latham, operations manager at the RMI. The market has been in decline for the last three years, he says. We seem to be bumping along the bottom, figures are not declining majorly.
Paul de Lusignan, general manager of motorcycle sales and marketing at Suzuki, agrees the market has been generally quite tough for a few years and general economic conditions have made motorcycling more difficult.
For many people, motorcycling is a leisure pursuit. Those people keep their motorcycle longer or maybe not service it or spend as much money on parts.
Last month, UK total bike sales in April were 3.5% down, year-on-year, and unchanged in May; year-to-date, the market, excluding mopeds, is up 1.3%.
Market growth, however, is apparent in bikes under 125cc, which can be ridden by those holding a driver’s licence after a single day’s compulsory basic training. The best-selling scooter in April can hit 146mph and the segment has seen 14.2% growth, year-to-date, with a pool of 11,000 vehicles.
According to Latham, the translation of sales in to finance growth is age-dependent.
Youngsters will struggle. Finance companies need a credit history. Older guys have that credit history.
Those with a credit history are fuelling the rise in sub-125cc bikes and which is a new market appearing as a commuting option for the 30-to-50-year-old age group, says Latham, not low-end scooters, 50cc and under, a sector standing still and which young riders finance by credit card.
As Mike Whytock, head of franchise and leisure at Black Horse, comments: new customers are seeing scooters as an attractive alternative mode of transport, which the MCI attributes in part to finance offers such as 0% deals.
Adventurous type
The segment of the market truly on the up, Latham points out, is adventure sports – bigger, bolder motorcycles appealing to the twin demographics of those who appreciate financing a vehicle and those looking for the romance a bike can provide – 41% up and over 5,000 units sold, year-to-date.
These bikes are being bought by middle-aged people to replace their cars. They are a classy alternative to commuting for those with access to credit, says Latham.
We were very much a sports bike nation, says De Lusignan but adventure sports and naked-style bikes such as the Suzuki V-strom 650, GSR 750 and GSX 1250 are now the biggest sellers.
Those bikes, three or four years ago, wouldnt necessarily have been the major players. Thats been quite a big change in the market.
According to BMW figures, the rapid growth of adventure sports – up 38.6% Q1 2012, year-on-year – have pushed BMW Motorrad’s market share of bikes over 125cc up from 13.5% Q1 2011 to 14.8% Q1 2012.
BMW Motorrad new vehicle registration rose 6.1% in Q1 while combined sales of the BMW R1200 adventure sports bike (GS and Adventure models) made it the market’s biggest seller. The RT model is the best-selling touring bike, a subsector close to adventure sports in which BMW holds a 51.8% market share, including the second- and third-best selling K1600 GT and GTL, which Pattinson believes has come through smart retail finance models such as PCP.
The bikes are operating in a premium segment. They are premium bikes. To pay for them monthly with a guaranteed future value gives people reassurance.
They can always have an up-to-date bike and that is what is making a success of these higher-end, more expensive bikes.
Dedicated teams
The spectrum of bikes appeal in a market fluctuating since 2008, means De Lusignan is also seeing more people take up finance, run through Close for two and a half years and a particularly good take up of all models, all available on a strong finance offer, in its adventure sports range.
Talking to dealers and Close, finance is becoming increasingly important, he says.
Since the economic downturn there have been fewer high street lenders and point of sale finance has benefited, particularly independents.
Captive bike finance appears equally buoyant according to Pattinson: Were having a really successful year. Weve seen our penetration climb above 60% on eligible models.
Weve got deposit contribution on a number of bikes and this works really well for us.
Part of that good work is not seeing motorcycles as a nice little extra" compared to car finance, Pattinson explains. A lot of other companies see it like that. We have two dedicated motorbike regional managers for finance facilities.
Worldwide, we see BMW FS playing a big part in the sales of motorbikes.
Likewise, Black Horse, the biggest player in motorbike finance according to the MCI, is seeing healthy levels in a transitional time for sales, believes Whytock.
Point of sale finance sales are generally up and we continue to see dealer finance as a viable lending model.
However, the market has to be able to change with the times and offer products and campaigns which strike a chord.
Bike dealers are learning too from some of the modern selling strategies employed by motor dealers, such as the use of social media and having better, more professional websites.
Different ride
Alongside dealer adaptation, BMW’s Pattinson says customer awareness, transferred from car finance, as changing bike funding.
People are getting their heads around finance on a motorbike now, he says. Affordability that applies to cars applies to bikes.
You can hire-purchase a bike but if you have it on PCP, you get the latest bike every two to three years and thats a great thing.
For those people, it is a hobby and it is a weekend pastime. They can have the newest, latest thing every couple of years.
De Lusignan estimates 30% finance penetration through dealers schemes jumps to 45 or 50% on top Suzuki models when the manufacturer supplies offers such as 3% APR.
Clearly, when there is a great rate on the finance that does increase the number of customers who take that offer.
Latham also thinks bike enthusiasts are more likely to be consumers who comprehend a good finance deal and offers Piaggio, parent to Vespa, as an example where roughly 35% of purchases are through finance.
This rarely would be your first-time bike. This would be consumers being selective by choice, with desire and image.
Same destination
Of all car finance models emulated the most used is PCP: Pattinson calls it a really good proposition for BMW Motorrad, Whytock says its uptake is a significant shift for Black Horse. Latham says it already dominates bike finance, to the benefit of the market, despite being so far fairly undeveloped, according to De Lusignan.
In May, the latest Ducati Finance offering meant it matched BMW, one of the only captives to offer PCP, by having all models in the UK covered by at least one PCP option, a move so popular dealers began advertising it before the formal launch.
We normally see 40% of customers retained on PCP versus about 21% on hire-purchase, says Pattinson. With deposit contribution, weve attracted a lot of conquest customers to the brand.
De Lusignan adds customer retention offered by PCP, paramount to keeping customers in the Suzuki family, is also a great way of helping the dealer.
Whytock agrees customers and dealers are drawn to PCP offered by Black Horse, to the detriment of HP, as for the same monthly outlay, customers can get a higher specification, more expensive bike.
The clamour for PCP is explained by its retail skew, says Latham. In cars, PCP was made for private people doing private, 10,000 mileages per year and motorcycles are a 99.9% private market.
Even more so than cars, adds De Lusignan, a motorcyclist will look to change bikes every two to three years to keep up with products. Add in low monthly payments and you have the two things bikers would like.
Thats one of the biggest opportunities. Not just at Suzuki but as an industry.
PCP is going to be important for motorcycles but dealers are not confident how to use it. There are some very strong dealers but its still unexplored territory.
We find people at bike shows saying they didn’t realise you could get PCP on a bike, says Pattinson. PCP is still misunderstood, relatively, across the car industry, despite everyones best efforts.
Funding luxury
Pattinson, however, thinks there are further possibilities for finance on motorcycles.
People understand the basic concept of monthly payments but arent used to it in a motorbike, he says. Theyre used to 0% finance. People are genuinely surprised that, for £150 a month, they can get an R1200 GS.
Thats a very powerful tool, I dont think other manufacturers have quite got into it. They struggle with the residual values.
Smaller balances mean manufacturers may ignore the profitability of bike finance compared to cars, says Pattinson.
Bikes, often, are a luxury good rather than a necessity, meaning different funding, often by credit card. But its working for us.
Also, standalone bike dealers may not get so much attention from the regional teams of other finance houses. We have two dedicated regional managers on bike finance. Theres a lot more focus on it. These guys are building relationships with the bike dealers and really making that work.
Similarly, Whytock attributes Black Horses success to its relationship with dealers, and manufacturers, built over 90 years in motorcycle finance by a dedicated team, many of whom are themselves bikers, and have face-to-face meetings with our dealers across the UK every day.
This helps us understand the market, which enables us to support our dealers with flexible products and strategies for success, including the Approved Dealer Programme and incentive programme Q-points, two proven routes to increased sales.
Suzuki is also working hard with its retail network. At the end of May Suzuki began a four-month-long nationwide test-ride roadshow through its dealerships, offering sales incentives and an opportunity to increase the manufacturer’s work with its outlets.
As De Lusignan says, although dealers understand and can sell HP, it is PCP that will dominate and is something we jointly need to work on.
Getting on
Although the RMIs Latham says bikes are a smaller purchase and harder to penetrate with finance he cites offers from manufacturers, of which there are more than ever before, as attracting customers to market. Particularly 0% offers and those of Suzuki.
According to De Lusignan, straight-forward low-rate APR schemes have been really well received by dealers and customers alike, including starting rates at 3%, and deposits at £1, on every model over 125cc.
What we try to do is make a new Suzuki as accessible as possible to the broadest range of people.
At Suzuki, we are clearly subsidising the interest rate in order to achieve those APRs, thats a strong retail offering.
In these tough conditions, it has to go hand-in-hand with other deals because customers are really looking for a great deal at every opportunity.
Such deals include a series of £800 cashback offers in May available on the Suzuki GSX-R750 and 600 to attract customers to finance and extended £500 on a range including the Gladius and V-strom.
Our bikes all offer good value to start with, says De Lusignan, but the combination of cashback and then a very low-rate APR for finance, that’s what we’re aiming at: to give the customer a monthly payment they can afford and enjoy riding a new Suzuki.
The industry-wide MCI Get On campaign to get more people on bikes, which endorses Black Horse and Close, is helping, he adds.
Were fully committed to the campaign, Im delighted Close have been supportive as well. Our dealers support it, too.
New customers are our lifeblood. An average customer these days is likely to be over 50 and coming in to motorcycling slightly later in life.
They generally have more affluence but we want to bring new customers into motorcycling, thats what Get On is aimed at.
Opportunities
Pattinson says the use of Close and Black Horse in the campaign, and their market dominance of non-manufacturer finance shouldn’t deter other non-captives.
There are enough different manufacturers out there, he says. Theres enough opportunity for lots of independents and for manufacturer captive finance houses to get behind bike dealers.
De Lusignan agrees there could be a position for another player between the two major independents, which could be interesting for the market as a whole.
As with car finance, funders needs product, the ability to underwrite and, crucially, the access to funding to offer dealers a decent return, says Pattinson but, in other ways, new independents could expand the whole market.
As motorbike finance companies, theres an opportunity to attract a new audience.
Its easy to advertise to existing motorbike buyers but is there a bigger audience out there who didnt realise, for £100 a month, they can get on a bike?
In particular, the adventure sports sector presents a different opportunity.
These are £10,000 bikes, priced above more standard offerings. These kind of bikes are so in demand and hold their value so well, theyre prime for a low monthly payment.
There is an opportunity to do more finance, adds Pattinson, in a market that may grow if motorcycles move from being a hobby to being a form of transport that is exempt from a lot of the taxation associated with cars.
It can only be good for the industry if other manufacturers get behind their bike divisions and offer funding. The more people that are riding, the bigger the bike parc gets, and the better that is for everyone.
richard.brown@vrlfinancialnews.com
